In-depth Business Intelligence
Books on Iraq
24,001,816 (July 2002 est.)
Iraqi dinar (IQD)
Update No: 027- (26/07/05)
Big trouble, big projects
The latest estimate of losses due to the sabotage of the oil industry is of
US$11.35 billion so far. Attacks on oil infrastructure have been shifting
towards power plants and domestic energy production, presumably with the aim of
discrediting the government. It is not even clear who is carrying out all these
attacks to the oil infrastructure. There are exchanges of accusations about
responsibility, with the government accusing the tribal militias and the
militias lamenting the lack of support from the regular army. This is not the
only problem that the oil industry is facing, as estimates of oil revenue lost
to theft and smuggling range from 5% upwards. Moreover, with the establishment
of the new government, many technocrats in the oil ministry have been replaced
by cronies of politicians, increasing the chances of corruption. Rumours abound
of oil revenue having been siphoned off to foreign bank accounts. Finally,
reconstruction aid cannot be spent on refurbishment of Iraq's oil wells yet
because liability issues between US government and KBR (a subsidiary of
Halliburton) have not been resolved yet.
Nonetheless, the oil minister, Bahr al-Ulum, has now officially presented his
plan to triple oil production in 10 years. The first step should be the creation
of a unified Iraqi National Oil Company. Then foreign assistance will be needed
in the development of 11 oil fields. Even if about 30 foreign oil companies have
already entered the Iraqi market and done some work there, sometimes for free,
almost all of these companies have so far refused to go beyond technical
training and consulting, aiming to establish a presence without investing large
resources. At least one contract dating back to the Saddam era has been
confirmed already in 2003, with Indonesian Pertamina for a development in
western Iraq, but the company had to suspend work due to security problems. Some
more substantial, although still minor, contracts have been awarded after the
removal of Saddam from power, most recently in January when a consortium
including Shell, BHP Billiton and Tigris Petroleum reached a deal to boost
production from the Maysan fields in the south. The other companies are instead
busy courting the Iraqi government and hoping to win big contracts when the
right time comes. Among the most active companies in Iraq today is Brazil's
First step towards privatisation
The reconstruction program is finally beginning to accelerate and
expenditure stood in July at US$178 million a week, despite uneven progress.
Although the contracts have all been assigned to Western companies, the
reconstruction effort employs 200,000 Iraqis.
The government's effort to reform the Iraqi economy continue however to move
very slowly. The attempt to drag Iraqis away from the informal hawala system,
which is alleged to be prone to misuse from terrorists and insurgents, is not
popular. Hawala is much faster than banks and cheaper too. The privatisation of
public companies finally started making its first steps at the end of June, with
the announcement of plans for the first 10 companies to go through the process.
However, the rest of the privatisation process will be delayed because the draft
privatisation law has been subjected to heavy criticism and the government will
wait until a new law is ready before privatising more companies.
Some aspects of the government's economic policies might just be doing damage.
The Iraqi market is being flooded by cheap Chinese imports, especially clothes
and electricals, following the liberalisation of imports. Local manufacturers
are unable to compete, not least because they do not receive any support form
the government. Even if the government decided to limit these imports, in the
current situation it would find difficult to do so, due to the extreme
fragmentation of the import trade.
Friends old and new
Between the end of June and mid July two donor conferences were held, which
provided hints about the prospect of more money being pumped into Iraq soon. The
Brussels conference, held at the end of June, did not bring much good news to
Iraq. Existing pledges were confirmed, but donor countries remain shy of
committing themselves to any delivery date, citing the security situation as a
main problem. Another donors' conference was held in July in Amman and was much
more productive, as Japan offered $US3.5 billion in low-interest loans for
water, sewerage, road and other projects. At the same time, the Iraqi government
has began to slowly re-align its foreign policy. The hostility of the ministry
of defence towards the Iranian government is a thing of the past. In July the
two countries announced that Iran will contribute to the training of Iraq's
military. Although the content of the deal was not actually clear, it is obvious
that a rapprochement is taking place, which will not necessarily please the US
government or it's agencies here in Iraq.
Iraq to invite international firms to invest in oil
Iraq's Oil Ministry aims to put 11 oilfields south of the country up for
investment by international firms in order to boost crude production to three
million barrels per day, a ministry spokesman told Deutsche Presse-Agentur (dpa)
"A study has been finalised to put for investment 11 oilfields south of
Iraq before the international companies with the aim of reaching a production
target of three million barrels per day," Assim Jihad said.
Iraq's current output is 2.2 million barrels per day, with 1.5 million barrels
going for export.
"Investment deals shall be subject to competition and there shall be no
priorities for any of the companies," he added.
"We want oil investments that serve the Iraqi oil industry in a way that
increases production averages without giving the chance to foreign monopolizing
companies to return to the Iraqi oil sector again," Jihad said.